In a recent keynote speech, Brian Benczkowski, head of the US Department of Justice’s Criminal Division, highlighted DOJ’s ongoing efforts at transparency and consistency and announced detailed guidance on how prosecutors will evaluate and handle inability-to-pay claims.

At Global Investigations Review’s 6th Annual GIR Live New York, keynote speaker Brian Benczkowski unveiled a memo, previewed in a speech by the US Department of Justice (DOJ) Deputy Assistant Attorney General Matthew Miner in September, with detailed guidance for prosecutors on evaluating and handling inability-to-pay claims. He described it as a reflection of the DOJ Criminal Division’s (Division) continued commitment to transparency and consistency: “part and parcel of our broader mission . . . to establish more predictable guideposts by which companies can gauge expectations, conform their conduct, and act as responsible corporate citizens.”

This is not a new methodology—to a limited degree, the Federal Sentencing Guidelines address the situation where a company cannot pay a fine. However, they do not provide specific direction on assessing such claims. The memorandum and its accompanying questionnaire provide all Division prosecutors an analytical framework and detailed guidance for evaluating and addressing a company’s claim that it cannot pay a criminal fine or monetary penalty.

“At bottom, these materials promote transparency—both inside and outside the Department,” Mr. Benczkowski said. “They help ensure that prosecutors stick to a more uniform set of considerations, and also that companies looking to resolve matters have greater insight into how prosecutors think.”

As set forth in the memorandum, the parties must first agree on the form of a corporate criminal resolution and the appropriate monetary penalty, based on the law and the facts, and irrespective of inability-to-pay considerations.

The organization will be expected to complete an 11-point questionnaire, which asks about recent cash flow projections, federal income tax returns going back five years, operating budgets, acquisition or divestiture plans, encumbered assets, and payments to the business’s top earning executives, among other things. Mr. Benczkowski said the questionnaire is meant to help “flesh out the company’s full financial picture . . . with a view towards making a fully informed, rational, and fair decision about a company’s ability to pay.”

In addition to analyzing the organization’s questionnaire responses, prosecutors are to consider a range of factors, including the following:

  • The company’s ability to raise capital.
  • Underlying circumstances that led to the organization’s current financial condition.
  • Collateral consequences to the company of the fine or penalty.
    • The following generally are considered not relevant: Adverse impacts on growth, future opportunities, planned or future product lines, future dividends, unvested or future executive compensation or bonuses, and planned or future hiring or retention.
    • The following generally are considered relevant: Inability to fund pension obligations, layoffs, product shortages, and significant disruptions to competition in the market.
  • Whether the fine or penalty will impact the company’s ability to pay restitution.

According to the memo, where Division attorneys find that an organization cannot pay the appropriate fine or penalty, they should recommend a reduction, but only by that amount necessary to avoid existential risk to the company and impairment of its ability to make restitution to victims.

Continued Focus on Corporate Criminal Enforcement and Efforts at Greater Transparency

Mr. Benczkowski cited the Division Fraud Section’s 2018 enforcement activity—406 individual prosecutions (a 33% increase from 2017) with a 40% conviction rate, 10 corporate enforcement actions, and more than $1 billion collected in fines, penalties, restitution, and forfeiture ($3 billion globally)—and noted that they are on track to exceed those numbers in 2019.

He said that while the Division remains “intensely focused” on holding culpable individuals and corporations accountable, the goal should not be just to punish but also to deter corporate crime. In that context, he emphasized the Division’s ongoing efforts to establish proper incentives for both individuals and corporations to foster the type of ethical behavior that will benefit all parties. To that end, Mr. Benczkowski said the Division has implemented policies and guidance in the last two years that reflect the Division’s continued belief in the importance of transparency.

“Having internal guidance that is both clear and clearly memorialized helps to ensure consistency and predictability in how those standards are applied within the Department,” Mr. Benczkowski said, adding that “consistency and predictability in [charging] decisions ensures as much as possible that similar behavior in similar cases is treated consistently and fairly across the board.”

When white collar practitioners are well prepared and well versed in the criteria that federal prosecutors deem relevant to their decisions, the process is more efficient and productive for both sides.

Transparency similarly benefits corporations, Mr. Benczkowski said: “By demystifying the considerations commonly confronted by white collar prosecutors, our hope is that companies will have the information and security they need to invest fully in compliance on the front end, and to make good decisions in the face of misconduct on the back end.”

Restructuring of the Fraud Section

Mr. Benczkowski also announced the Division’s decision to rename and reorganize the Securities and Financial Fraud Unit, citing the 2017 resolution with Takata Corp. over faulty airbags as an example of a case the Unit handled that was neither securities nor financial fraud. The Unit will now be called the Market Integrity and Major Frauds Unit to more accurately capture the range of fraud enforcement work its prosecutors perform.

Additionally, the Unit will reorganize internally to reflect five “missions,” each with its own team: (1) Securities Fraud, (2) Commodities Fraud, (3) Government Procurement Fraud, (4) Fraud on Financial Institutions, and (5) Consumer Fraud, Regulatory Deceit, and Investor Schemes.

Continuation of the No Piling-On Policy

In response to a question from the audience, Mr. Benczkowski assured that DOJ’s No Piling-On Policy, announced in May 2018, “absolutely” will remain in effect. He explained that the Division takes the policy very seriously, especially given the number of matters that cut across many divisions of the US government. He added that DOJ will credit certain payments that are made to foreign governments, as that approach appropriately reflects the Division’s commitment to transparency and balance in resolutions.

Takeaways

Companies intending to pursue an inability-to-pay claim must be prepared to complete the detailed questionnaire and provide supporting materials, and are well advised to do so with complete transparency, as their responses will be scrutinized not only by Division attorneys, but also by the government’s accounting experts. Additionally, given the Division’s continuing focus on prosecuting individuals and corporations for criminal activity, companies are wise to build and maintain effective, customized, risk-based compliance and ethics programs.